5 Ways To Increase the Financial Value of a Healthcare Company

Volume 11, Issue 10, June 4, 2024

By: David Coit

Owners of healthcare companies are accustomed to creating financial value for their businesses by focusing on the traditional areas of scope of services, client/patient capacity, and revenue streams via reimbursement yield and patient volume.

While revenue growth and operational efficiency are key value drivers for a healthcare company, neither addresses a critical value factor known as company-specific risk (CSR). CSR, also referred to as unsystematic risk, can be understood as risk unique to a company or industry. Differences in CSR are one of the most significant reasons some healthcare firms get top dollar when sold, while others receive a fraction of their potential sale price.

Let's look at five ways healthcare business owners can increase their financial value by decreasing their CSR.

1. Create a fully developed, written business plan

Few small to medium-sized healthcare businesses create a business plan once they are no longer early-stage companies. Instead, they tend to rely on an informal, ad-hoc approach to planning that relies extensively, if not exclusively, on the activities of the business owner(s).

Taking the time to develop a written business plan at various stages of a company's history provides owners and employees the ability to discuss and create a roadmap that supports the owners' business strategy. A detailed business plan also decreases CSR by addressing issues such as:

1. Where is the business headed?
2. How will we get the business there?
3. How much will it cost us to get the business there?
4. What are competitors doing to keep us from getting there?

2. Establish an independent and engaged board of directors

Since most healthcare company owners are healthcare professionals who have learned how to be businesspeople through trial and error, they are often not accustomed to seeking advice from seasoned business professionals. That explains why some healthcare business owners believe that assembling a board or directors or advisory board will diminish their independence. However, board members can deliver significant value to business owners by sharing competitive insight, acting as a sounding board for new ideas, enhancing access to growth capital, strengthening company credibility, suggesting alliances, and more.

Company boards reduce CSR by providing strategy guidance, thought leadership, and hands-on experience. Viable businesses often have the support of a group of seasoned business professionals who have a genuine interest in the success of the company.

3. Develop a sustainable corporate culture

Many small to medium-sized healthcare companies have a corporate culture that mirrors the personality of the owner(s). As such, the culture may not be well-suited to capitalize on growth opportunities and may not foster a collaborative environment among disciplines and employees. Moreover, the culture may not actively and effectively develop future leaders throughout the company.

Effective corporate cultures help energize employees, attract new clients, improve the effectiveness of managers, and enhance company reputation. Developing a sustainable corporate culture reduces CSR by lessening the impact of high employee turnover, decreasing unethical behavior, and increasing positive employee interactions.

4. Set up an experienced and focused sales team

Few small to medium-sized healthcare companies have dedicated sales professionals on staff. Instead, they rely on generating business through the likes of referrals and company websites. While these are important for a company's growth, the addition of quality salespeople can be a difference maker. The right sales team can solidify relationships with patients/clients, gather critical feedback regarding the company's performance, and gauge and help a business respond to market trends. A quality sales team can reduce CSR by creating a pipeline of new patients/clients, reducing patient/client concentration, and enhancing barriers to competitive threats.

Why don't many small to medium-sized healthcare companies establish an experienced and focused sales team? Some healthcare providers are under the impression that governmental regulators frown on these kinds of activities. Others believe sales efforts are unprofessional in healthcare. Both perspectives are misguided. Larger healthcare companies almost always have a professional sales staff, which can make it difficult for smaller firms without a sales team of their own to remain competitive.

5. Create and adopt a marketing plan

A well-written marketing plan includes the duties and responsibilities of the marketing person or team, a detailed assessment of the target market, competitive analyses, and brand development, among other topics. A fully developed and adopted marketing plan helps reduce CSR by establishing and sharing knowledge of the company's target market and tactical plans to expand market share. Moreover, a marketing plan establishes a foundation for delivering the desired patient/client experience.

Some healthcare company owners believe that when a marketing plan is created, it will eventually collect dust on the shelf and never be reopened. What they fail to realize is that a functional marketing plan is never finalized. The plan should be treated as a living document that changes as the market environment and the company changes. The plan should also be regularly revisited, evaluated, and updated based upon factors including the success of marketing campaigns, identification of new marketing opportunities, and marketing efforts by competitors.

Learning the Value of Your Healthcare Company

Understanding CSR factors and how to mitigate them can significantly increase company value. To gain a better understanding of your CSR factors, learn about the value of your company, and find out ways you can potentially strengthen the value and performance of your healthcare business, reach out to me or any other member of the VERTESS team. We're help to help!

David Coit DBA, CVA, CVGA, CM&AA, CBEC, CAIM

I am a seasoned commercial and corporate finance professional with over 30 years of experience. As part of the VERTESS team, I provide clients with valuation, financial analysis, and consulting support. I have completed over 400 business valuations. Most of the valuation work I do at VERTESS is for healthcare companies such as behavioral healthcare, home healthcare, hospice care, substance use disorder treatment providers, physical therapy, physician practices, durable medical equipment companies, outpatient surgical centers, dental offices, and home sleep testing providers.

I hold certifications as a Certified Valuation Analyst (CVA), issued by the National Association of Certified Valuators and Analysts, Certified Value Growth Advisor (CVGA), issued by Corporate Value Metrics, Certified Merger & Acquisition Advisor (CM&AA), issued by the Alliance of Merger & Acquisition Advisors, and Certified Business Exit Consultant (CBEC), issued by Pinnacle Equity Solutions, and Certified Acquisition Integration Manager (CAIM), issued by Intista.  Moreover, the topic of my doctoral dissertation was business valuation.

I earned a Doctorate in Business Administration from Walden University with a specialization in Corporate Finance (4.0 GPA), an MBA from Keller Graduate School of Management, and a BS in Economics from Northern Illinois University. I am a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.

Before joining VERTESS, I spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During my commercial finance career, I analyzed the financial condition of thousands of companies and successfully sold over $2 billion in corporate debt to institutional buyers.

I am a former adjunct professor with 15 years of experience teaching corporate finance, securities analysis, business economics, and business planning to MBA candidates at two nationally recognized universities.

We can help you with more information on this and related topics. Contact us today!

Email David Coit or Call: (480)285.9708